United States: US Federal Circuit Deals Blow To Software Patents, But Fails To Provide Cohesive Rationale

On May 10, 2013, the US Court of Appeals for the Federal Circuit issued a highly anticipated, but in the end somewhat unfulfilling, en banc decision in CLS Bank v. Alice Corp., holding that claims for a computerized trading platform were ineligible subject matter under 35 U.S.C. § 101, regardless of their characterization as a method, system, or computer readable medium. The en banc panel issued a per curiam decision and five separate opinions with no opinion gathering majority support for the legal rationale in invalidating the claims at issue. Thus, no opinion may serve as binding precedent. However, seven of ten judges agreed that the claims are invalid. Eight of the judges concluded that the particular method, medium, and systems claims should rise or fall together under the patent eligibility analysis. Thus, the basis upon which to decide whether computer software related claims are eligible for patent protection remains murky.

Alice's patents include method, computer-readable medium, and system claims that generally relate to a computerized trading platform for conducting financial transactions where a third party settles obligations between a first and a second party in order to eliminate settlement risk, including steps of creating a record, obtaining a balance, performing an adjustment, and instructing an exchange based on the adjustment. The asserted method claims do not mention any hardware or computer based limitations, but for purposes of the appeal, the parties agreed that the method claims are implemented via a computer. The computer readable medium claims recite a "computer program product comprising a computer readable storage medium having computer readable program code embodied in the medium" and further include "program code for causing a computer to send a transaction," as well as "program code for causing a computer to allow viewing of information relating to processing" of the exchange obligation. The processing feature further includes "electronically adjusting" various accounts to affect an exchange obligation and "generating an instruction" to adjust recited accounts. The system claims recite a "data processing system to enable the exchange of an obligation between parties," a "data storage unit" that stores information about a shadow credit record and a shadow debit record for a party, and a "computer" that is configured to "receive a transaction," "electronically adjust" the recited records in a particular manner, and "generate an instruction" to an exchange institution to adjust records.

Judge Lourie, writing on behalf of himself and Judges Dyk, Prost, Reyna and Wallach, expressed that after identifying whether a claim fits within one of the four statutory classes set out in § 101 (e.g., process, machine, manufacture, or a composition of matter), the court analyzes whether the claim contains additional substantive limitations that narrow, confine, or otherwise tie down the claim so that, in practical terms, it does not cover the full abstract idea itself.

This concurring opinion found that the method claims at issue are directed to an abstract idea related to a "form of escrow" for reducing settlement risk, and the computer implementation of the method claims is merely insignificant post-solution activity that does not meaningfully limit claim scope for purposes of patent eligibility. The computer readable medium claims suffered a similar fate, as the term "computer readable storage medium" is stated in broad and functional terms that are incidental to the claim. Despite their Beauregard format, the concurring opinion considered these computer readable medium claims as being equivalent to the method claims directed to an abstract idea and stated that "discrete claims reciting subject matter only nominally from different statutory classes may warrant similar substantive treatment under § 101 when, in practical effect, they cover the same invention." Likewise, the system claims recite a data processing system, a data storage unit, and a computer, but the concurring opinion viewed the system claims as a computerized system configured to carry out a series of steps that mirror the method claims. Despite the varied use of computer terminology in these claim formats, the concurring opinion found that these claims required the performance of the same basic processes and were a mere implementation of an abstract idea.

In a separate opinion, Chief Judge Rader (and Judge Moore) agreed that the method and computer readable medium claims were ineligible, but disagreed with the concurring opinion for considering a system claim an "abstract concept," thereby turning "a narrow exception into one which may swallow the expansive rule (and with it much of the investment and innovation in software)." Chief Judge Rader explained that because the system claims include various structural components, these claims further limit the system by requiring a structural configuration that performs the claimed functionality according to specific system requirements. Chief Judge Rader disagreed with the characterization of system claim limitations at issue as conventional post-solution activity, because the specification recited detailed algorithms for the software with which the recited hardware is programmed and dependent claims added additional structural and functional limitations that "render the system more concrete." Judges Linn and O'Malley joined Chief Judge Rader's opinion as to validity of the system claims.

Judge Moore (and Judges Rader, Linn and O'Malley) expressed concern with the impact of Judge Lourie's opinion. In her dissenting-in-part opinion, Judge Moore stated that "lumping together the asserted method, media, and system claims, and holding that they are all patent-ineligible under §101 ... gives staggering breadth to what is meant to be a narrow judicial exception." Judge Moore agreed with Chief Judge Rader and would have held the system claims as patent eligible.

Writing separately, Judge Newman expressed the view that while all claims stand and fall together, the method, system and medium claims are eligible under a broad statutory reading of § 101. Judge Newman explained that "it cannot be that computer-implemented developments may or may not be eligible under section 101 depending on how broadly they are sought to be claimed. Breadth of claiming, and undue breadth, are determined under sections 102, 103, and 112, not section 101." 

Finally, in yet another opinion, Judges Linn and O'Malley disagreed with the construction of the method claims employed in the other opinions as their basis for considering the method claims as patent eligible under § 101 and would have also found the system and medium claims as patent eligible.

While no single rationale gathered majority in this case, it is clear that a mere mention of a "computer" is unlikely to be sufficient to satisfy the patentable subject matter eligibility hurdle. Because the Alice court did not generate a precedential opinion, it further remains to be seen whether a method claim's failure to comply with § 101 requirements necessarily infects similarly drafted system and computer readable medium claims. The Federal Circuit certainly did not go as far as to say that all software is ineligible under § 101, and each judge appears to have a different threshold for determining whether an idea is abstract when implemented by a computer. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions